When checking your score hurts your credit

We would all like to pay less for mortgage financing, the biggest debt most of us will ever have. We all know that higher credit scores equal lower mortgage rates but does checking your credit score hurt your credit?

The answer is sometimes yes.

We each have to check credit scores with some frequency. In the past, this was terribly difficult to do because the rules for credit reports and credit scores differ.

Go to AnnualCreditReport.com, a site authorized under federal law. You can get one free credit report every 12 months from each of the three major credit reporting agencies. That’s a total of three credit reports every 12 months. What you can’t get for free at this site is your credit score.

Why the difference between the availability of credit reports and credit scores? Long ago, it was extremely difficult to get copies of credit reports, and then the government changed the rules. The theory was that consumers should be able to see their own credit reports because it contains their information.

If that information is wrong, then an individual’s credit standing can be hurt and the costs to borrow might rise significantly.

Today, there are a number of sites which offer free credit scores and do not require you to sign up for other services or provide a credit card number. How can these sites give away free credit score information? The answer is that such sites provide credit card offers and other financial services for consumers to consider.

As they say in digital marketing, “When the ‘product’ is free, you are the product.” In effect, providing free credit scores is a lure used by such sites to draw visitors to their platforms and acquire visitors’ information.

“Hard inquiries” and “soft inquiries.”

With a hard inquiry, when you apply for credit, a lender pulls your report to see if you qualify for a mortgage, credit card, auto loan, or other financial product. A soft credit inquiry occurs when you check your own credit, and when you are not seeking additional credit.

For a $200,000 mortgage, the monthly cost for principal and interest will increase from $1,013.37 to $1,028.28 for a lower score. That’s a difference of $14.91 per month or $178.92 a year.

Since there can be a penalty with hard credit inquiries why not deal with just deal with one lender? The system is set up to encourage mortgage shopping so you can get the best deal. As credit score pioneer Fair Isaac explains, rate shopping is “a smart thing to do, and your FICO score considers all inquiries within a 45-day period for a mortgage, an auto loan or a student loan as a single credit inquiry.”

Soft inquiries do not reduce your FICO score

The credit system encourages soft credit inquires where you are not seeking a new or additional extension of credit. Sites that offer truly free credit scores can have great value. Check your scores regularly to spot any sudden swings that might suggest credit report errors or identity theft.

In addition to inquiries you make, other forms of soft inquiries include checks by creditors where you already have an account and businesses who buy credit data in an effort to help identify potential customers.

Online credit scores may differ from the scores used by creditors. Mortgage lenders, for example, will pull scores from the three major credit reporting agencies. They will then use the middle score. In effect, online scores can provide a useful measure of your credit standing – but maybe not an exact measure.

The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.